We see increasing risks that the Malaysian ringgit could
experience further selling pressures over the coming weeks due to
resurfacing troubles in the eurozone. Following a sell-off across
regional currencies in September, the Malaysian ringgit depreciated by
around 7.5% before finding support at MYR3.2048/US$. Further negative
developments in the eurozone could see the ringgit retesting its recent
low of MYR3.2048. A break below this level would present significant
downside risks to our year-end target of MYR3.1500/US$ for the currency.

External Headwinds Remain

Malaysia - Malaysian Ringgit Spot, MYR/US$

Source: Bloomberg, BMI

Core View

Global economic headwinds, including the sovereign debt crisis in
the eurozone and growing concerns of a hard-landing in China, should
spell further weakness for risk-on currencies including the Malaysian
ringgit over the coming months. However, despite these downside risks to
the Malaysian ringgit's outlook in the short term, we expect the
country's robust current account dynamics to provide support for a
steady appreciation in the currency over the medium term. Furthermore, a
positive economic outlook should underpin strong foreign direct
investment (FDI) inflows and fuel demand for the ringgit over the coming
quarters. Nonetheless, we expect further weakness in the currency in
H112 before the ringgit resumes its bullish uptrend in H212. This means
that the ringgit should average at around MYR3.1800/US$ in 2012 before
strengthening to MYR2.8500/US$ by end-2013.

Despite cooling external demand, Malaysian exports have remained
resilient in recent months. Trade exports grew 10.8% year-on-year
(y-o-y) in August (up from 6.9% y-o-y in July) while outpacing that of
imports at 6.8%, resulting in a healthy trade surplus of US$3.7bn.
Although we expect the trade balance to narrow over the coming months, a
surplus would nonetheless be positive for the ringgit. Meanwhile, FDI
inflows are likely to remain strong in 2011 due to a positive response
from foreign investors towards the government's ambitious Economic
Transformation Plan (ETP). In fact, we have already seen compelling
evidence that investor optimism over the ETP has been a key factor
behind the surge in capital inflows into Malaysia in 2011. According to a
survey conducted by the International Trade and Industry Ministry,
local and foreign private sector companies are expected to commit
MYR50.6bn (US$16.8) worth of investments in 2011. We are optimistic that
these FDI inflows should provide further support for the currency over
the coming quarters.

Strong Cushion Of Reserves

Malaysia - Foreign Reserves, US$mn

Source: Bloomberg, BMI

According to figures published by Bank Negara Malaysia (BNM), the
recent wave of selling pressure in the foreign exchange market drained
the country's foreign reserves by 4.1% from US$134.5bn in August to
US$129.1bn by the end of September. However, it is worth noting that the
central bank's intervention in the foreign exchange market is largely
aimed at limiting short-term volatility in the exchange rate, rather
than an attempt to defend against a balance of payments deficit. As the
accompanying chart shows, despite the central bank's intervention, the
country's foreign reserves remain above its pre-crisis peak. Our view
that Malaysia's trade balance will remain in surplus while FDI inflows
will continue to grow over the coming quarters means that we should see a
continued accumulation of reserves.

We note that movements in the Malaysian ringgit and the Chinese
yuan are highly correlated as a result of BNM's conscious efforts to
keep Malaysian exports competitive. Given that we expect external demand
to remain relatively subdued in 2012, export growth should continue to
slow over the coming months. This poses a risk that the BNM may seek to
limit any significant gains for the ringgit in order to prop up
exports.

Catching Up With The Yuan ?

Asia - Spot MYR/US$ (LHS) & 12-Month CNY/USD NDF outright (RHS)

Source: Bloomberg, BMI

Risk To Outlook

FDI inflows will play a major role in sustaining a steady
appreciation in the Malaysian ringgit over the coming quarters. To a
great extent, this is heavily dependent on the successful implementation
of the government's ETP. We warn that Malaysia's deteriorating fiscal
position, which we expect to amount to a deficit of 5.6% of GDP in 2012,
represents a significant risk to the government's ability to implement
the ETP. Should investor sentiment start to wane on the back of growing
concerns that the government could face difficulties in financing the
ETP, a slowdown in FDI inflows would mean that the currency could see
limited gains in H212.

BMI View: On the heels of recent
surprisingly fast-paced reforms, potential opportunities for Myanmar's
economy are perhaps the highest they have been in over five decades.
Moving forward, the economy could be set for a boom period in real
estate, tourism, construction, and exports, but much will depend on the
government's continued push towards reform and the eventual lifting of
stifling US and EU sanctions. We see the Myanmar economy growing by
5.0% in 2012 following a 6.0% performance in 2011 even as growth in the
rest of the world falls more sharply given the country's unique
prospects of economic liberalisation.

One of Asia's best educated and wealthiest states prior to a
military coup in 1962, Myanmar is now bereft with a cumbersome dual-rate
exchange system, a major infrastructure deficit, and heavy sanctions
from the US and EU following almost five decades of failed economic
policy. However, on the heels of an election that was widely derided as
a rigged handover of power from the military to its own factions in
2010, change may finally be coming in earnest to the beleaguered
resource-rich state.

The culmination of recent (and surprisingly strong) reform efforts
was US Secretary of State Hillary Clinton's November 30 visit to
Myanmar, during which she met with President Thein Sein and political
activist Aung San Suu Kyi. The visit represented the first time such a
high level official from the US had visited Myanmar since 1955 and
heralded a major thaw in relations between the two countries. Following
such an extended period in isolation, the recent pace of change has been
relatively breakneck and could open up myriad opportunities for
Myanmar's struggling economy.

Dependence On China To Wane

Myanmar's sudden shift towards political reform is highly
indicative of its intentions to stem its growing reliance on giant
neighbour China. Over the past 18 months, Myanmar has received 20% more
foreign direct investment inflows than it had over the preceding 20
years combined, with China responsible for 70%. President Thein Sein's
September decision to halt the China-backed US$3.6bn Myitsone dam
project signalled that the new government is serious about balancing the
playing field with China, and to do so, Naypyidaw has now turned
towards the West.

Shooting Higher

Myanmar - Stock Of Foreign Direct Investment, US$mn

Source: BMI, UNCTAD, Myanmar CSO

This is not to say that Myanmar's relationship with China is
likely to deteriorate precipitously. Given China's thirst for Myanmar's
natural gas and copper resources, and Myanmar's continued need for
Chinese investment, the two countries' mutual interests promise to keep
relations close. Moving forward, China is very likely to remain
Myanmar's closest ally and largest investor as was indicated by head of
Myanmar's armed forces General Min Aung Hlaing's auspicious visit with
putative future Chinese president Xi Jinping just days before Clinton's
arrival.

Lifting Of Sanctions Could Usher In New Era

Still, détente with the US in particular could present monumental
economic opportunities for Myanmar. Since 1997, the US has forbidden
all new investment by American companies into Myanmar as well as most
Myanmar exports to the US. While the US has repeatedly stated that
Myanmar's government will have to show considerably more progress on the
political reform front before it can consider reducing or lifting
sanctions, Clinton's visit is a major step forward, indicating that the
US is likely to reward Myanmar further if the reform process moves
ahead.

The lifting of sanctions by the US and EU would solidify Myanmar's
re-emergence into the international economy and could eventually set
the stage for the country to build its own economic miracle. Rich in
natural gas, timber, gems, metals, and myriad other valuable natural
resources, Myanmar could potentially become a resource exporting
powerhouse. Furthermore, with a literacy rate near 85% and at least 5mn
English speakers nationally (most of whom live in Yangon) out of a total
population near 60mn, Myanmar possesses considerable human capital.

Secondary Axis Required

Asia - Annual Exports Of Goods, US$bn (Myanmar RHS)

Source: BMI

Still, it should be noted that corruption remains extremely
widespread across Myanmar and will continue to plague its poor business
environment for an extended period despite even swift wide-ranging
reform. Myanmar's current state is underscored by Transparency International's
most recent Corruption Perceptions Index rankings, which place the
country second worst in the world, tied with Afghanistan and above only
Somalia.

Real Estate, Tourism Set To Boom?

In the short term, Myanmar's real estate and tourism sectors stand
to gain immensely from an opening of the economy. In stark contrast to
just one year ago, when struggling local hoteliers were converting
chronically vacant rooms to office space, room shortages are already
cropping up in the country's largest and most economically active city,
Yangon, as businessmen and tourists alike are drawn towards the
country's rapidly changing atmosphere.

In the real estate sector, even though prices have risen for every
year for the past 20 years (according to media and anecdotal reports),
the hopes that reform will lead to reduced limitations on foreign
ownership should keep already lofty prices underpinned through 2012.

With cash being far too risky for most wealthy Burmese to hold and
foreign banking not an option for almost anyone holding a substantial
amount of wealth, rich Burmese have plunged their capital into real
estate, sending the market surging over the past few years. Prices have
been reported as high as US$1,245 per square foot in the most sought
after locations in Yangon, with properties in some upscale
neighbourhoods hovering around US$375 to US$625.

Still, if and when serious economic reforms take place, foreign
demand could lead to massive speculation in the market, driving prices
even further skywards over the medium term in what remains an
exceedingly underdeveloped market. Furthermore, whereas booming
property prices have thus far been restricted to a very limited section
of Yangon, they could begin to spread rapidly should economic reforms
move ahead as hoped. In such a scenario, a lack of office space in
Yangon (where there is only 540,000 square feet of office space, or the
equivalent of one New York skyscraper) and across the country is also
likely to portend a construction boom.

Kyat Could See Further Strength

Despite having the brightest outlook in nearly six decades, the
Myanmar economy still faces major challenges before it can enter the
pantheon of South East Asian miracle countries like Vietnam and
Thailand. Standing in its way is a dilapidated exchange rate mechanism,
where the black market rate of the Myanmar kyat to the US dollar is
more than 120 times greater than the official government rate. As the
official government rate of MMK6.4355/US$ is rarely (if ever) used to
settle transactions, the black market rate, currently at MMK776.00/US$,
is the effective exchange rate.

Although the government is working with the IMF in order to move
towards a single-rate mechanism, it lacks the ability to control the
currency in a meaningful way. In light of the suddenly reform-minded
government, as well as historic communication with the US, we now see
the possibility of continued strength in the kyat despite it having
appreciated more than 20% over the past two years. As the economy opens
up, foreign demand for the kyat will surge, underpinning the currency's
already strong historical price.

Significant Upside Risks To Growth Forecast

Despite the growing chance of renewed recession in the US and EU,
Myanmar's starting position as a nearly completely isolated economy
means that it bears little exposure to the global economy's woes. As a
result, risks to our growth forecast of 5.0% for 2012 are weighted
heavily to the upside. Should either the US or EU ease sanctions
considerably, we would consider revising our forecast upwards.

BMI View: Iraqi Finance Minister Rafi
al-Eisawi's plan to reduce the budget deficit by two-thirds, which
relies on increasing oil exports and privatising state-owned
enterprises, is feasible but will require a significant degree of
political will in order to reform the business environment. Given our
view that political instability will retard the pace of reforms, we
maintain our budget deficit forecasts of 2.7% and 2.6% of GDP in 2012
and 2013 respectively.

The Iraqi government's goal of reducing its budget deficit by
two-thirds by the end of 2014 is achievable, though will require a high
degree of political will. On October 22, media sources quoted Finance
Minister Rafi al-Eisawi as stating that the government planned to reduce
the budget shortfall by increasing oil production and privatising
state-owned enterprises (SOEs). Given the high degree of political
instability in the country, we expect the business environment reforms
necessary to attract foreign investment into SOEs will take a
significant amount of time to enact (and therefore lead to but a few
acquisitions, if any, over the medium term). Therefore, we maintain our
budget deficit forecasts of 2.7% and 2.6% of GDP in 2012 and 2013
respectively.

Hydrocarbons Are The Easier Route

Fiscal revenues are set to increase dramatically over the
coming years, mostly due to advances in hydrocarbon production that will
allow for greater exports. Our Oil and Gas research team projects oil
production to rise from an average of 2.8mn barrels per day (b/d) in
2011 to 7.5mn b/d by 2016, with export volumes rising from 2.0mn b/d to
6.6mn b/d over the same period. Although we foresee declining
international energy prices over the medium term, from an average OPEC
basket price of US$102 per barrel (/bbl) in 2011 to US$99/bbl in 2012
and US$97/bbl in 2013, the effect of rapidly rising oil production, and
in turn exports, will cause oil revenues to rise sharply (see accompanying chart).

Hydrocarbon Revenues To Pour In

Iraq - Forecasts For Value Of Petroleum Exports

Source: BMI

Privatisations Entail Greater Complexity

Privatisation is another potential source of revenues,
according to Eisawi, but we see several obstacles to successful sales of
SOEs. Reforming the economy from a state-centric system to a
market-based one is a high priority for the government, and there is
certainly a large pool of potential assets available for privatisation
(with 177 state-owned firms in the country). Approximately 43% of all
Iraqi state-owned firms (a total of 76 enterprises) fall under the
authority and supervision of the Ministry of Industry and Minerals
(MIM), with ownership of 250 factories. Sectors span the areas of
agriculture, transportation, telecommunications, utilities,
construction, hydrocarbons, and financial services, among others, and
given the high rates of growth that the country is projected to see (see our online service, November 8, 'Double-Digit Growth Ahead'), many of these could be attractive targets for investors.

A Large Pool Of Potential Assets For Sale

Iraq - Breakdown Of Number Of SOEs By Ministry

Source: BMI, Iraq Task Force For Economic Reforms/UN/World Bank

That said, we note that there a number of obstacles to the
privatisation plans, and a high degree of political will would be
required to ensure that the business environment is attractive enough
for investors to bid. The lack of a favourable environment has proven to
be a decisive factor in previous failed attempts by the MIM to
establish public-private partnerships (PPPs) between SOEs under its
authority and investors, according to the US Special Inspector General
For Iraq Reconstruction (SIGIR).

A series of laws have yet to be updated in order to address
potential legal issues of privatisation, and while an Economic Reform
Law is currently being developed, changes also need to be made to the
country's Companies Law and Investment Law. Furthermore, investors would
need assurances that they would not receive any legal backlash from
laying off workers (as many SOEs have excessively large payrolls).
However, there are significant concerns regarding political stability in
the country, which will slow down the pace of reforms and dampen
investor interest (see our online service, October 19, 'Mounting Challenges To Stability').

Success Would Help On P&L

Should Baghdad succeed in spinning off even a few of its
SOEs, we would expect to see substantial benefits. First, the government
would see a large (albeit temporary) source of new revenue. Second, and
more importantly, fiscal expenditures related to maintaining
state-owned firms would decrease, boding well for the budget. Many SOEs
have suffered heavy damage to their assets, rendering the firms
inoperable and therefore unable to earn revenues, yet workers are kept
on payrolls and paid from government coffers. Others are able to
function but have a bloated workforce. These firms collectively employ
over 633,000 workers, and employee compensation expenses took up 41.5%
of total fiscal expenditures (US$22.8bn out of total expenses of
US$55.0bn) in 2010. Thus, privatisations would have a major impact on
both revenues and expenses.

BMI View: There is a strong case to
be made in support of the argument for a devaluation of the Iraqi dinar,
including improved fiscal dynamics, greater reserve accumulation, and
export competitiveness. However, we believe political and other
considerations in support of the current peg of IQD1,170/US$, including
inflation and social stability, will prevail over the medium term.

We do not foresee a major change in the country's exchange rate policy going forward (apart from a potential redenomination - see our online service, April 15, 'Redenomination Of Dinar Will Have Negligible Impact).
Local media sources reported that the Central Bank of Iraq (CBI) had
sold US$205mn on October 31, above the prior week's sale of US$154mn,
whilst it had consistently sold similar sums in recent quarters.

This
peg, which is being set at an artificially high level, is costing the
country billions of dollars per year in foreign exchange and reducing
the government's revenues in local terms. However, it appears that
Baghdad has continued this policy in order to limit imported
inflationary pressures and to promote economic stability in the country,
and we believe the policy will continue over the medium term.

The Case For Devaluation

Devaluation of the dinar would bring several benefits, most
notably related to fiscal revenues. The government relies heavily on
oil exports for its revenues, and a weaker dinar would allow each dollar
of hydrocarbon receipts to go further in paying dinar-denominated
expenses. Baghdad has been eager to invest in capital projects,
particularly those related to electricity, energy, and housing, and also
increased current expenditures on items such as subsidies and a larger
payroll. A devalued dinar would go a long way towards setting the
country on a path towards greater fiscal stability (see accompanying chart).

Depreciation Would Improve Fiscal Accounts Dramatically

Iraq - Budget Balance Under Two Scenarios

Source: BMI

A weaker local currency would also allow the government to
accumulate reserves at a faster rate. As stated earlier, the current peg
is causing the CBI to sell millions of dollars every week, and those
funds could instead be used to build up foreign reserves even more.
While Iraq's reserves, which amounted to US$55.2bn at the end of
September, are far from being depleted, continued sales of foreign
exchange may not be sustainable over the long term.

Cashing In On Higher Energy Prices

Iraq - Net Foreign Reserves, US$bn

Iraq - Net Foreign Reserves, US$bn

Similar to many countries across the Middle East, Iraq is seeking to
diversify its economy away from oil, and a devaluation would make its
exports more competitive in the global marketplace. With hydrocarbons
making up over 90% of all exports and over half of GDP, along with
double-digit rates of unemployment, a competitive export sector would
facilitate greater investment in sectors other than energy and, in turn,
create more employment opportunities.

Sticking With The Status Quo

While the aforementioned arguments suggest strong economic
cases for a devaluation, we believe other factors will outweigh them
over the medium term. Iraq is a major importer of food items, being
among the world's top ten importers of wheat. Food also takes up a large
portion of Iraqis' disposable income (as evidenced by the fact that
food makes up over 60% of the consumer price basket). Thus, the
importance of maintaining low food prices cannot be discounted,
particularly at a time when price shocks have sparked large-scale unrest
across the region.

Stronger Exchange Rate Has Contributed To Lower Inflation

Iraq - IQD/US$ Exchange Rate (LHS) And Inflation, % chg y-o-y (RHS)

Source: BMI, Bloomberg, COSIT

Higher food prices due to a devaluation would not only have an
impact on the country's political risk profile, they would also force
higher government spending. Baghdad currently runs a costly Public
Distribution System, which provides a ten-item food basket to the large
majority of households every month. This programme is intended to limit
the impact of food prices rises on the public, and the government has
allocated US$3.4bn of its 2011 budget (approximately 6%) to paying for
all the goods. Thus, while a devaluation would make every petrodollar
more valuable in local currency terms, there may be unintended
consequences such as a larger food bill.

Projecting a sense of stability is a major goal of the
government, as it would increase investor appetite for foreign direct
investment (FDI), and the current peg to the dollar gives the impression
of contributing to macroeconomic stability in our view. By relegating
monetary policy to the management of the Federal Reserve, Baghdad is
allaying investor fears that a mistake in monetary policy could send the
economy crashing in the medium term. As a result, while export
competitiveness is a major consideration, we believe the aim of building
investor sentiment by linking Iraqi monetary policy to that of the US
is an even more decisive factor and will continue to be over the medium
term.

Pelaburan Hartanah Bhd (PHB), which declared an interim dividend
distribution of RM32 million for its Amanah Hartanah Bumiputera (AHB)
unit trust fund for the six-month period ended March 31, 2012, plans to
expand the size of the fund.

PHB chief executive officer (CEO)
and managing director (MD) Datuk Kamalul Arifin Othman said the fund is
looking to buy more completed and income-yielding assets, as well as
expanding its landbank and venturing into more property development
projects.

“To further ensure the PHB’s portfolio remains
up-to-date and competitive, sustained initiatives have been executed to
actively acquire a more dynamic mix of properties,” said Kamalul Arifin
in the press release. Yesterday, it declared the interim dividend
distribution which amounts to 3.25 sen per unit.

This is the
third income distribution to unit holders by AHB. Last year, a total of
RM50 million was paid out — RM19 million on the first income
distribution and RM31 million in the second.

AHB income distribution is payable on a six-monthly basis for periods ending March 31 and Sept 30, each year, and is tax-exempt.

One
billion AHB units were launched in November 2010, and all were fully
subscribed within three months, said PHB, with the highest take up in
the Federal Territory (49.67%) followed by Selangor (14.51%).

To
date, the fund has invested in eight completed properties in and around
the Klang Valley, including the Darul Ehsan Medical Centre Specialist
Hospital in Shah Alam, Selangor.

In October, PHB signed an
agreement for a property development project with Gleneagles Hospital
Kuala Lumpur, involving the extension of the hospital, at a cost of
RM138 million.

Gleneagles will be granted a 15-year lease for the extension, with an option to extend the period for another 15 years.